Supreme Court Casts Doubt on Payday Lenders’ Challenge to Consumer Financial Protection Bureau
The Supreme Court expressed skepticism on Tuesday regarding the payday lending industry’s attempt to undermine the Consumer Financial Protection Bureau (CFPB), an agency that has been heavily criticized by conservatives since its establishment over a decade ago. This case has significant implications for the mortgage industry and the broader U.S. economy, as trade groups representing payday lenders question the way Congress funds the bureau.
Unlike most federal government agencies, the CFPB is funded through the Federal Reserve, a measure aimed at protecting it from political pressure and avoiding annual budget battles on Capitol Hill. However, payday lenders argue that this funding arrangement violates the Constitution as it resembles a perpetual blank check. Some conservative justices also voiced concerns about the arrangement, including Justice Brett Kavanaugh, suggesting that Congress could change it at any time.
During the spirited argument, the Biden administration contended that the government has long relied on similar funding methods for independent agencies. Supporters of the bureau warned that a ruling against it could have significant spillover effects on other agencies such as the Federal Reserve and the FDIC.
While the conservative wing of the Supreme Court seemed divided on the issue, Chief Justice John Roberts and Justice Samuel Alito expressed reservations about such funding arrangements. They raised concerns about the possibility of future Congresses surrendering their power of the purse and granting federal agencies extensive latitude to set their own budgets. Roberts emphasized the potential enhancement of executive power if Congress were stripped of its spending authority.
The bureau was established in 2010, partly to enforce lending regulations, and is funded by the Federal Reserve, which derives its financial resources from banking fees and other sources. The U.S. Court of Appeals for the 5th Circuit previously ruled that the bureau had acted within its authority to create regulations but held that Congress had violated the constitutional principle that only it can initiate spending when setting up the agency’s funding. This ruling not only threatened the bureau’s payday lending rule but also its overall functionality.
Notably, the Supreme Court had already curtailed the agency’s independence in a prior ruling three years ago during the Trump administration. The court made it easier for the president to remove the bureau’s director at that time.
Originally conceived by Senator Elizabeth Warren, the bureau was designed to advocate for consumers in their interactions with banks. Some of the regulations enforced by the bureau include those relating to lending practices.
In summary, the Supreme Court’s skepticism towards the payday lending industry’s challenge to the Consumer Financial Protection Bureau raises doubts about the agency’s funding method and the potential consequences for the mortgage industry and the broader U.S. economy. The court’s conservatives appeared split on the issue, with Chief Justice Roberts and Justice Alito expressing concerns about the appropriation of Congress’ power. A ruling against the bureau could undermine its payday lending rule and affect its overall operations.
